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Markets in Financial Instruments Directive II – MiFID II

Please note that this publication only serves to provide general background information, is not necessarily complete or correct, and does not contain individual, legal or other advice. The MiFID/MiFIR regulations might impact our clients making use of our financial products (e.g. derivatives, securities) and services and their relationship with us. Therefore, we urge our clients to familiarise themselves with this matter and to obtain the necessary information.

MiFID II successor of MiFID

MiFID is the Markets in Financial Instruments Directive and has applied across the European Union since November 2007. It is the cornerstone of the EU regulation of financial markets and seeks to improve the competitiveness of EU financial markets by creating a single market for investment services and activities, ensuring a high degree of harmonised protection for investors in financial instruments.

In line with its intended objective, MiFID has contributed to more competitive and integrated EU financial markets. However, shortcomings were exposed in the wake of the financial crisis and the European Commission wanted to enhance both supervisory activities and transparency via an updated MiFID regime.

The Markets in Financial Instruments Regulation (MiFIR): which regulates European financial markets, foster transparency and competition and (central) trading of shares and derivatives.

MiFID II and MiFIR become effective as of 3 January 2018.

The European Commission's use of both a directive and a regulation reflects the need to achieve a uniform set of rules (i.e. MiFIR), while allowing for differences in national markets (i.e. MiFID II). The directive and regulation should be seen in conjunction with (proposed) regulations such as EMIR (European Market Infrastructure Regulation) and MAD/MAR (Market Abuse Regulation en Market Abuse Directive). All legislation aims to achieve a more transparent and reliable European financial system (e.g. less risk, better liquidity, improved oversight and no market abuse). MiFID II and MiFIR together are further referred to as “MiFID II”.

New aspects

The changes to MiFID II focus on a number of key areas, which include:

Transaction Reporting
Investment firms are required to report executed transactions to a so-called approved reporting mechanism. The aim of this obligation is to improve transparency on the financial markets. Further, it enables supervisory authorities to detect and monitor market abuse Therefore, the number of fields to be reported per transaction is increased and the reporting obligation applies on more products (e.g. including commodities).

Pre- and Post-Trade Transparency
The existing pre- and post-trade transparency requirements under MiFID I have been expanded from shares to equity-like instruments, bonds, derivatives, emissions allowances and structured finance products traded on an EU trading venue. Investment firms need to have the appropriate pre-trade publication on order submission in place and are required to publish post-trading data. This change will help to reinforce the protections for fair and orderly trading.

Best Execution & Order Handling
Under MiFID II investment firms (including Systematic Internalisers) are required to take all the necessary measures to ensure the best possible result for its customers’ execution. They provide and publish on a quarterly basis information on best execution. Part of this requirement is that investment firms need to have an order execution policy in place. More information on Best Execution policy can be found here.

Investor protection
MiFID II enhances provisions to ensure investor protection such as enhanced conduct of business requirements around conflict of interests, suitability (assess whether a product or service is appropriate for a client), inducements (including unbundling and payment for distribution and reception of research), costs & charges and product governance.

Which Rabobank clients will be impacted by MiFID II?

All clients located in the European Economic Area that receive products or services in scope of MiFID.

How does this impact the clients of Rabobank?

As our clients are at the heart of our existence, Rabobank has always considered transparency and integrity as the cornerstone of a solid long-term relationship. Rabobank will implement MiFID II requirements and is therefore able to fully service its clients to the best of its abilities. MiFID II will bring the following changes that can affect our clients:

Legal Entity Identifier
As far as not already required under EMIR, all legal entities obtaining MiFID products or services will need a LEI to comply with reporting obligations under MiFID II. The LEI (Legal Entity Identifier) is a globally acknowledged code which will make it possible for regulators to identify different counterparties for a transaction globally. In addition to the EMIR scope of OTC derivatives, MiFID II expands the LEI requirement to non-OTC products including securities and structured deposits.

National Client Identifier
For all natural persons who trade in financial instruments under MiFID II Rabobank needs to obtain the National Client Identifier (NCI).

Each EU Member State has specified which NCI should be used for its citizens. For instance, for Dutch nationals the passport number needs to be recorded. For the complete list of NCI specification per nationality please check the following link.

Terms of business
Clients of Rabobank will receive new terms of business (the “MiFID Terms”). These MiFID terms are applicable to clients that are classified by us as Professional clients and/or Eligible Counterparties (ECP).

The MiFID Terms enable the uninterrupted continuation of our business relation, and ensure compliance with the MiFID II requirements. The MiFID Terms are not applicable to Retail clients as these clients are serviced under a separate set of terms and conditions, which will be updated as well.